On the anniversary of the assassination of Martin Luther King Jr., National Geographic hosted the program “Race: What Defines Us?” One question raised during the discussion was whether the nation has lived up to Dr. King’s aspirations of equity if we use the racial wealth gap as a measuring stick.

According to the Federal Reserve, African Americans saw increases in their mean, or average, wealth (what you own minus what you owe) between 2013 and 2016. But the difference between the mean wealth of white families and that of African American families also expanded. This growth in the racial wealth gap is captured in an update of the Urban Institute’s “Nine Charts about Wealth Inequality in America.”

Even though African American families had a larger percentage increase in net worth than white families between 2013 and 2016, the average wealth gap grew because white families’ wealth in 2013 was so much greater than African Americans’ wealth. Average wealth increased about 35 percent for African Americans in that time frame, compared with 28 percent for white families. But the gap between the average wealth of white families and African American families grew from more than $600,000 in 2013 to nearly $800,000 in 2016.

Driving factors of the racial wealth gap

Some people assume these wealth disparities stem from African Americans’ lack of personal effort to improve their financial situation. But the evidence does not support this assumption.

In 1995, Melvin Oliver and Thomas Shapiro published their seminal book, Black Wealth/White Wealth, establishing that the racial wealth gap is not the result of individual missteps but is driven by systemic barriers such as structural racism, policies, programs, and institutional practices that facilitate wealth building for white families while inhibiting or stripping wealth from African American families.

More recent studies demonstrate that even when families take steps to improve their prospects, their actions alone do not close the racial wealth gap. The average wealth of African Americans with a bachelor’s degree or higher ($271,000) is less than that of white high school graduates ($368,000). White families headed by an unemployed worker have almost two times the average wealth ($21,892) of African American families headed by a worker employed full time ($11,649). White single parents have more than twice the wealth of married African American parents, and white families are five times more likely to receive an inheritance than African American families.

Homeownership is a key component of wealth building, but racial disparities in homeownership persist. Research shows that although blatant housing discrimination has declined, subtle discrimination persists, resulting in qualified African American home seekers being informed of and shown fewer homes than their white counterparts. African American communities have also been targeted by predatory lenders for subprime loans even when borrowers qualified to receive prime loans, making them more susceptible to foreclosure and loss of wealth.

Retirement saving is another vehicle used to accumulate assets. But occupational segregation leads to a disproportionate share of African Americans holding jobs that do not provide employer-sponsored savings plans. When similarly situated workers have access to such plans, however, their participation and contribution decisions do not vary by race. 

How policies can help close the gap

Eliminating these structural barriers will require policy change, such as a more equitable treatment of tax subsidies that supports asset accumulation. Under current tax policy, roughly two-thirds of the largest subsidies go to the highest-income earners who need them the least. To help close the racial wealth gap, tax reform could provide tax credits for first-time homebuyers and facilitate the establishment of pretax retirement savings plans to workers who need these benefits the most. 

Another policy that could help close the racial wealth gap would be to establish children’s savings accounts that provide every newborn a publicly funded deposit in a savings account, with low-income babies receiving a larger deposit. An alternative proposal is the “baby bonds” approach that would provide every newborn a child development account, with the size of the account based on the wealth status of the baby’s family.

Implementing policy changes along these lines will move the nation closer to the equity Dr. King championed.